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Beneficiaries, Right to trust information, Trustee liability

The high cost of obfuscation

Costs are an increasingly live issue in court proceedings.  The risk of a loss and the resultant costs is a valid, and important, consideration when contemplating proceedings.  When the proceedings relate to a trust, the matter is more complex due to the trustees’ right of indemnity from the trust fund.  However, given that whenever the trustees are indemnified, it is at the beneficiaries’ ultimate cost, it is important to establish whether costs were “properly incurred”. 

In the matter of Dean v Moyle the residuary beneficiaries’ requests to a trustee for information regarded the investment of farm proceeds were ignored or deflected for a period of over 7 years.   When provided the information indicated substantial capital losses and other issues.  Requests for historic portfolio reports were not acted upon.  The required information only being provided after an application was made under s 44 of the Administration Act for an account of the estate.

Confirming that the application was entirely properly made, the court’s concern in the case was with regard to costs.  The respondent trustees accepted their personal liability for the applicants’ costs.  However, the question was whether the respondent trustees’ costs should be met from the trust (one trustee consented to meet half the costs personally, the other (whose firm was the trust’s investment adviser) sought to be indemnified from the trust).  In determining the matter the court was satisfied that only the investment advisor trustee was aware of the information requests; that the trustees’ costs of more than $20,000 would have been avoided if the investment advisor trustee had responded to information requests; and that the information requested was “information to which he had ready access and to which the applicants were clearly entitled”[22]. In failing to provide the information requested the investment advisor trustee failed to meet his obligation to provide full and accurate information about the trust’s capital.  For this reason the costs were not reasonably incurred in execution of the trustees’ duties.  However, as the information requests were only made to the investment advisor trustee, and for the reasons noted above, the court ordered that the investment advisor trustee be solely liable to meet the estate’s costs in respect of the application.

While information requests were originally deflected on the basis that the trustee was unsure regarding his information obligations, it is difficult to appreciate why it was not possible for these obligations to be clarified and acted upon in a more timely fashion.  An expensive lesson.

Possibly, not the only lesson from this matter as substantive proceedings have been indicated so that matters pertaining to the diminution of the trust’s capital can be further explored.

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